Cryptocurrency lender Celsius Network Ltd. has filed for bankruptcy protection as token prices plunge to multiyear lows, leaving the Caisse de dépot et placement du Québec vulnerable to losing its investment in the troubled company.
In Celsius’s bankruptcy filing, which it made late Wednesday in a New York court, it claims to have US$167-million in cash on hand. The filing says the company has US$4.3-billion in assets and US$5.5-billion in liabilities.
Last month, Celsius abruptly halted all transactions and withdrawals, citing “extreme market conditions.” The New Jersey-based company, with almost two million customers, had long touted itself as the “world’s leading crypto earning and lending platform,” offering interest rates as high as 17 per cent to depositors.
Because of its early success, Celsius attracted major global investors, including the Caisse, which bought in as part of a US$400-million funding round that valued the company at about US$3-billion late last year.
In February, Celsius hired Rod Bolger, who had recently departed from his role as Royal Bank of Canada’s chief financial officer, as its head of finance. “As a proven leader in the space with significant backing, liquidity, and an incredibly exciting growth trajectory, I knew Celsius was the right home for me,” Mr. Bolger said in a June 8 company blog post.
Celsius is only one of several crypto-related firms to have imploded over the past few weeks. The sector-wide panic has investors nervously examining the web of connections between crypto companies, in an effort to learn which of them may be next to fall.
Canadian pension funds are often regarded as being among the most sophisticated institutional investors in the world, yet they have been adding more risk to their portfolios in recent years. Celsius’s collapse illustrates how that strategy can backfire.
The company’s downfall also raises questions about the level of due diligence the Caisse conducted before making its investment, particularly considering that the crypto sector is very loosely regulated and many of its companies had yet to endure a down market.
The Caisse initially defended Celsius when the company halted transactions on June 13. “Celsius is taking proactive action to uphold its obligations to its customers and has honoured its obligation to its customers to date,” spokesperson Kate Monfette said.
In an interview Thursday, Ms. Monfette declined to say whether the Caisse’s equity investment would be wiped out by the bankruptcy. She also declined to say whether it would affect plans for other investments related to cryptocurrencies.
“We are following the matter closely and reviewing the filings submitted by Celsius. We are not in a position to comment further at this time,” she said.
Securities regulators in Vermont, Kentucky, New Jersey, Texas, Alabama and Washington confirmed Thursday that they are actively investigating Celsius, adding that the company’s insolvency will not slow down their probes. The U.S. Securities and Exchange Commission declined to comment.
Celsius has not responded to repeated requests from The Globe and Mail and other news organizations for comment, prompting speculation about what exactly forced the company to freeze its customers’ accounts.
“This is the right decision for our community and company,” Celsius chief executive officer Alex Mashinsky said in a Wednesday blog post. “I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
Celsius added in the same blog post that its cash reserves “will provide ample liquidity to support certain operations during the restructuring process.” The company said it expects the court to approve its motions to pay its employees and continue their benefits without disruption.
It remains unclear whether Celsius users will be able to withdraw any of their money from the platform. In the company’s court filing, Celsius largely attributes its collapse to a mismatch between users who expected easy liquidity and the company’s lending strategies, which lock users’ assets into loans and other long-term activities. This strategy left the company “to deal with an unexpected and rapid ‘run on the bank,’” the filing says.
Celsius – which has more than 100,000 creditors – says in its terms of service that, if the company goes bankrupt, customers “may not have any legal remedies or rights in connection with Celsius’ obligations.”
The price of bitcoin has fallen more than 70 per cent this year. It recently plunged well below the psychologically important threshold of US$20,000, and it was hovering around US$19,700 Thursday. That price level is significant because it was roughly the peak of bitcoin’s 2017 cycle.
Meanwhile, ether, the second-most-popular cryptocurrency, has also recently traded below its symbolically important level, US$1,000. On Thursday, it rose to about US$1,080.
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